I am a writer, thinker and patriot who lives in Louisville, Ky., with my beautiful wife and daughter. I have written for Forbes, Marketplace, The Huffington Post, and NPR's On The Media. I also blog at www.brooklynbabydaddy.blogspot, and tweet at @DaSerchuk. Please contact me at daveserchuk@hotmail.com with any questions, or compliments.

Great Moments In Punditry: Art Laffer Edition

Economist Arthur Laffer has had a long, distinguished career. Unfortunately one of the things that has distinguished it is that he has often been extremely wrong.

That’s why, in a new feature for this blog, I have Revoked Art Laffer’s Pundit License. ™

This means that everyone who reads this blog will understand that Laffer has been quite wrong about many things, and continues to appear on TV as if he had been right. Well, something has happened Mr. Laffer: you were caught being wrong. Now it’s time to ‘fess up if you want your Pundit License reinstated. Until it is reinstated you are strongly advised to not make grand, sweeping proclamations about the economy, or America’s political scene. The credibility you save might just be your own.

I will periodically revive this feature whenever I see pundits being completely wrong in public over long, extended periods of time, and suffering few if any repercussions.

Laffer is best known for his eponymously-named Laffer Curve, and made the case that lowering income taxes for the wealthy will generally create more revenue. This helped gain him entry into the Reagan White House, where he helped shape the idea known as “trickle-down economics.” The takeaway is that as you lower taxes on the wealthy they reinvest their cash back into the economy in infinite ways, enriching everyone. In this light the idea is that lower income taxes for the highest earner actually lead to more tax revenue for the federal government, in the end.

I do not want to revoke Laffer’s Pundit License because of this theory. Instead I will let the past decade of stagnant economic growth coupled with low income taxes, low capital gains taxes, and low estate taxes make the case for me.

Okay, maybe I do want to take on the Laffer Curve. But, better yet, I will let Bruce Bartlett do it for me. Bartlett was, like Laffer, one of the early proponents of trickle-down economics, and has a long history of service to the Republican party. He was senior policy analyst in the Reagan White House, and deputy assistant secretary for economic policy at the Treasury Department during the George H.W. Bush administration. So, you could say Bartlett has Republican street cred.

He also has regular cred, because he’s done his research, and has come to the heretical conclusion, based on facts, that lower income taxes do not pay for themselves. Not now, and not during Reagan’s time. In fact, Bartlett notes, tax revenues dropped quite noticeably during Reagan’s time in office, and what increase revenues did see only came because Reagan actually rose taxes 11 times, not because he cut them.

“The fact is that the only metric that really matters is revenues as a share of the gross domestic product. By this measure, total federal revenues fell from 19.6 percent of GDP in 1981 to 18.4 percent of GDP by 1989. This suggests that revenues were $66 billion lower in 1989 as a result of Reagan’s (tax cut) policies,” Bartlett blogged.

Brian S. Wesbury, a noted economist and Forbes columnist, also debunks the idea that higher tax rates automatically spell recession and revenue collapse. In fact, during the Clinton administration the exact opposite happened, he wrote: “Real GDP grew 3.7% at an annual rate in the second half of 1993 and then 4.2% for the full year of 1994. No recession.”

In response Laffer said: “The Laffer Curve is a pedagogic device showing abstractly the relationship between tax rates and tax revenues. It doesn’t predict either higher or lower revenues from a tax cut. What I have argued is that tax rate cuts on the highest income earners have generally led to higher revenues and that tax rate cuts on middle income and lower income earners have generally lost revenues. Across-the-board tax cuts could go either way. With Kennedy, I do think the tax cuts raised revenues, and with ‘W’ tax cuts lowered revenues.”

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

Comments

Dave, You must be having a bad day. What conflict was there in the 80′s besides Lebenon and Genanda ? NY, LA, Detroit and Miami were more dangerous then the rest of the world. I find that instead of seeing the big picture, critics today use a scapel on what people say on both sides of issues instead of looking at the big picture and what is the desired results. President Reagan was a great leader. The US was depressed in the late 70′s and early 80′s and by the time he left office we all were feeling better about ourselves. that is what Art is talking about. As far as taxes are concerned we have a spending problem not a taxing problem. We need to get people back to work ! And the only way to do this is to have good leadership in Washington. Reagan never attacked the Dems. In fact he talked to them behind closed doors all the time. Once we have that leadership ( I don’t know who ) we will have more jobs and more tax revenue. I have my own plan that combines fixing housing, freezing medical spending etc.

Hi Dino, Thanks for the note. What conflict? South Africa, the ongoing Cold War, the Iran-Contra debacle, a massive crack wave in our cities, sky high urban violence that lasted through the decade, a new epidemic of homelessness, AIDS, the list, literally, is endless. Add in bad ’80s dance music, and you have a truly epic decade.

As for having a spending problem, and not a tax problem, maybe we have both?

It wasn’t just Art Laffer being shown up as a smarmy booster for the rotten debt boom – see the above link. I am very disappointed Mr Laffer refused to confirm to you whether he had had the grace to write a humble pie eating letter to Schiff. I think it goes to show that most pundits, academics and journalists slavishly follow the herd with group think and are selling their ideology and only a precious few people out there such as Peter Schiff are analysing the facts actually in front of them.

It is scary that the corridors of power are filled with the arrogant, intellectually dishonest and overrated such as Laffer, Greenspan et al.